According to a report by Crisil, the last five years in rural areas have been majorly affected with inflation in comparison to its urban counterparts.
The report states that in the last 24 months to June 2016, while urban inflation fell from nine percent to 5.3 percent (compared with the two years prior), rural inflation declined from 10.1 percent to 6.2 percent.
In fiscal 2016, rural core inflation was 6.7 percent compared with 4.8 percent in urban. Sub-categories such as health, education, household goods and services and recreation and amusement have all recorded higher inflation in hinterland last fiscal.
And fuel inflation in rural was 6.8 percent, more than two-and-a-half times the 2.7 percent in urban. Also, the meltdown in commodity prices including petrol prices fell 7.6 percent last fiscal, and diesel prices 11.7 percent, hasn't benefited rural areas as much as urban.
Inflation in firewood and chips, which is used by 84 percent of the rural population compared with 23 percent of urban was 7.4 percent, while that in dung cake, used by close to 41 percent of rural households compared with just seven percent in urban centers.
Also, 37 percent of urban households use petrol, and 2 percent use diesel for their vehicles as compared with less than half that, 17 percent petrol, and 0.8 percent diesel in rural households, according to data for fiscal 2012 (latest available).
Petrol and diesel account for 3.5 percent of monthly consumption expenditure in urban areas, and less than half that at 1.7 percent in rural. In addition, poor storage and transport facilities (poor roads and connectivity) have meant limited pass-through of lower commodity prices to the countryside.
The government is improving access through the Pradhan Mantri Gram Sadak Yojana, there is still a long way to go. Lack of recreation options and supporting infrastructure such as constant electricity also stoke inflation in rural areas.
The absence of ample institutional medical services has had a bearing on healthcare costs, overall non-institutional medical inflation rose by 9.7 percent last fiscal, rubbing salt into festering rural price wounds.
To sustainably lower inflation and bridge the gap between urban and rural prices, the government needs to improve road connectivity and healthcare infrastructure in rural areas, and relentlessly implement the Pradhan Mantri Ujjwala Yojana, which aims to provide cooking gas connectivity to five crore below-poverty line beneficiaries over the next three years.
